Article Archive

March 25, 2010

Tax History: Taxation and Its Discontents

Joseph J. Thorndike

Pity the editors of print publications, especially those of the monthly or quarterly variety. Time is cruel to everyone, but it's especially hard on writers trying to say something intelligent about politics and meet a printer's deadline weeks or even months before actual publication. What can you say when everything worth saying will have already been said?

Not much, usually. Practitioners of the periodical press learn early to hedge their bets. If you avoid definitive statements (and certainly all predictions), you minimize the chance of looking like an idiot. You also minimize the chance of saying anything useful.

It's also wise to go long: When you're not sure where things are headed, just talk about where they've been. Situate events in the grand trajectory of American history, and you can rest easy that you won't be proven wrong -- at least not anytime soon. (Well, it works for me.)

The perils of print have been on display this month, as a raft of postmortems for the Obama presidency have appeared on the heels of Obama's great victory in the healthcare debate (arguably the greatest legislative triumph of the last 40 years, judged simply on the basis of improbability). But several dead-tree articles published in recent weeks have managed, against the odds, to make some useful points. In particular, they have raised valid questions about the meaning of modern liberalism, including liberal taxation -- whatever that might be.

Liberalism, R.I.P.

In the current issue of Harper's, novelist qua political analyst Kevin Baker offers an obituary for modern liberalism. In his political writing, Baker generally offers well-reasoned, if slightly overwrought, analyses from a left-of-center vantage. He always displays a fine grasp of American history, albeit one colored by a quest for usable lessons. All history is instrumental in some fashion, but the challenge is staying honest enough with your sources to keep your agenda from corrupting your story. No small trick.

Baker's article, "The Vanishing Liberal," doesn't quite pull it off. It's not that he gets the history of American liberalism wrong, exactly. He just manages to oversimplify it in the service of a grand narrative. For Baker, the bedrock of liberalism is a conviction that "human agency is still possible in the modern world -- that democratic action can make a difference when ranged against vast, impersonal forces and supposedly immutable 'laws' of human society." That's a reasonable definition. But Baker then goes on to cram the messy, confusing, and sometimes unappealing history of American liberal politics into that definition of American liberal theory. His efforts are all in the service of demonstrating that today's liberalism is a shadow of its former self. Baker has a story of declension to tell -- a tale of lost virtue and "learned helplessness." Modern liberals have forgotten how to fight against the entrenched interests of wealth and privilege, he contends. In fact, they have lost any interest in fighting. "Obama, the congressional Democrats, and most of our other politicians at every level now maneuver within interests they cannot conceive of challenging," he writes.

In Baker's narrative, the right-wing populism of the tea party variety represents the last desperate cry for help from a downtrodden populace abandoned by liberal reformers. Anger needs an outlet, and if it can't find one on the left, it will eventually look elsewhere. "The counter-Populism of the right is the prisoner's last, despairing option, to move from learned helplessness to suicide," he writes.

All very neat, and to a point convincing. But it has three problems. First, it requires Baker to put a very positive spin on past liberal movements, including some -- like the Populists of the late 19th century -- that were sometimes linked with less than savory elements of the political dynamic, including segregation and race discrimination. Second, it demands that he delegitimize right-wing populism, or at least cast it as some sort of tragic mistake by a confused working class. And third, it requires him to exaggerate the achievements and minimize the failings of past liberals.

The Meaning of Liberal Taxation

Let's take tax policy as a case in point. Baker several times invokes the history of liberal tax policy, especially the rise and fall of the income tax. He notes, for instance, that the Supreme Court struck down the income tax in the 1890s, just 30 years after it was used to help fund the Union's cause in the Civil War. (It had subsequently disappeared in the early 1870s, only to be revived in the 1890s.) This defeat was a blow to liberalism, Baker suggests, since liberal policies must work to constrain the economic and political power of wealth.

Well, yes. Except that income taxes, for most of their long history, have only occasionally been used for the explicit purpose of constraining and limiting wealth. At various points, government policy has been designed with those aims in mind, but generally speaking, taxation has played a supporting, not a starring role, in those moments of liberal ascendancy. Progressive taxes, including the income tax, have been defended -- at least by mainstream politicians -- as a means of redistributing the tax burden, not wealth or income. Such a reallocation of the fiscal burden can and does have larger redistributive effects, to be sure. But those effects have only occasionally been made the principal justification for progressive tax reform. More often, levies like the income tax have been used to ensure that everyone is paying "their fair share." They have been tools for equalizing sacrifice, not society.

Liberalism may indeed be all about preserving human agency, in which case inequality is probably the single biggest problem confronting liberals. But past liberals, like their contemporary counterparts, have only rarely used taxes as a means to attack inequality directly. Instead they have focused on spending programs and nontax regulatory schemes. Progressive taxes have been the means of financing redistributive government in equitable fashion.

I don't mean to overstate this point. Activists and left-leaning interest groups have often argued passionately and straightforwardly for using taxes to redistribute wealth. The Populists are a case in point. And while these arguments have not generally been embraced by mainstream politicians, they certainly helped build momentum for progressive tax reform at crucial junctures.

Occasionally, lawmakers have tried to tax inequality into submission. During World War I, for instance, lawmakers impressed by the efficacy of excess profit taxation indulged in some ambitious thinking about the peacetime possibilities of limiting corporate and even personal income. Similarly, the flood tide of New Deal reform, stretching from 1935 to 1936, featured some forthright talk about the need to limit the accumulation of wealth and its intergenerational transmission.

But these were exceptions to the rule, not the rule itself. Liberal tax policy has only rarely put such arguments at the center of progressive tax reform. Instead, liberalism has emphasized the importance of shared fiscal burdens. Progressive reform -- whether accomplished by raising rates or closing loopholes -- has been defended as a blow against favoritism and special privilege. The postwar history of American liberalism makes this especially clear, as Democrats increasingly embraced the notion that rates could be lower if preferences could be eliminated. Fairness was served, in this version of liberalism, not by taxing wealth away, but by ensuring that wealth carried its fair share of the overall burden.

Postwar liberalism was very much about preserving human agency generally and ameliorating inequality in particular. But it focused increasingly on the spending side of the fiscal equation, relegating taxes to a supporting rather than a starring role. In which case we might cut modern-day liberals a little slack. If they have failed to defend redistributive taxation -- and I think they generally have, at least until recently -- they are only continuing a long tradition of liberal politics (as opposed to liberal theory). If liberal tax policy, defined as redistributive taxation, has been in secular decline, it's probably fair to say that the slide began around World War II.

Their Not-So-Fair Share

Where liberals have actually departed from the history of liberal tax policy -- and where they have demonstrated exactly the sort of "learned helplessness" that Baker bemoans -- is on the subject of taxation generally, not progressive taxation in particular. Cowed into submission by decades of antitax rhetoric from the right, liberals have lost the capacity, or perhaps even the will, to defend the very legitimacy of taxes.

William Galston of the Brookings Institution makes this point in yet another example of liberal soul-searching, this time published as part of a symposium in Democracy, a quarterly journal of liberal thought. Liberals, Galston declares, must be willing to offer an affirmative argument for adequate taxation and the government it supports. "We agree with Oliver Wendell Holmes Jr. that taxes are the price we pay for civilization," he writes in his version of a liberal manifesto. "Liberals should not ignore the consequences of taxation for economic growth and family well-being, of course, but we cannot accept the anti-tax fundamentalism of so many contemporary conservatives. If the public does not believe that tax increases are buying more civilization, however, it will resist them."

The failure of modern liberalism to make this case for taxation is evident, ironically, in the ostensibly "liberal" tax arguments that dominate Democratic politics in the age of Obama. Specifically, efforts to confine necessary tax hikes to the "rich" implicitly devalue government and taxes. If a given program -- expanded health coverage, for instance -- is only valuable enough to make others pay for it, then it can't be very valuable in the first place.

An affirmative case for activist government depends on an affirmative case for taxation. If voters are going to believe that big government is valuable and necessary, then they have to be asked to pay for it. Offering them a free lunch -- even when defended as a means to compensate for other, unjustified tax breaks directed at the rich -- is no way to build a durable liberal majority.

Political theorist Danielle Allen asks a provocative question in the Democracy symposium: "How might one weave anew a sense of shared citizenship?" She then answers her question, at least in general terms: "We need to build institutional forms and public practices that more frequently engage politically diverse citizens in pursuit of a common purpose."

A common purpose. The phrase resonates with a long tradition of progressive/liberal thought in American society. It has also been central to the development of American tax policy, at least during eras of liberal ascendancy. Taxes are a vital "institutional form," as well as a shared "public practice." They give substance to the common enterprise of American government. And for the last 75 years or so, income taxes have played a particularly vital, and symbolic, role in this enterprise.

The annual springtime ritual of filing a return remains a touchstone of American civic culture. Make no mistake: April 15 has never been a happy day for Americans. But neither has it been an outrage or an occasion for tea parties, protests, and jeremiads on the decline of American freedom. If liberals hope to open an era of progressive government, they must first rescue April 15, and taxes in general, from the scorn they suffer in today's political arena.